principal reason for securing the nomination right. For its part too, the company may regard the nomination arrangement as a means by which, through the nominee, it can obtain and utilize the expertise of the nominating shareholder and gauge a key stakeholder’s alignment with important decisions. Accordingly, a certain amount of information sharing between the nominating shareholder and the nominee director is often desirable and permitted in practice. As a matter of best practice, any sharing of non-public information should be undertaken with the corporation’s consent. If the parties intend to permit communication from the nominee to the nominating shareholder, they should consider expressly agreeing to terms that allow for appropriate communication. However, even under the sanction of a formal agreement, the licence to share information can never be absolute or unconditional. As we discuss below, the sharing of confidential information must be exercised in accordance with the nominee’s fiduciary obligation to act in the best interests of the corporation, the need to protect the corporation’s privilege in certain communications and the restrictions imposed by securities laws against tipping material non- public information. Note that Canadian and Delaware corporate law as it relates to information sharing differ in important respects. Unlike Canada’s default rule against information sharing, the Delaware bench has acknowledged that certain nominee-nominator relationships give rise to an effective right of the nominee to share information with the nominating shareholder (including where the nominee acts as a dual fiduciary of the company and the nominating shareholder). But even so, the Court of Chancery has warned that nominee directors “use and share information at their own risk, and they can be liable for breach of fiduciary duty if they use the information or permit it to be used for an improper purpose.” 6
6 Hyde Park Venture Partners Fund III, L.P., v FairXchange, LLC , Del Ch, March 9, 2023. See also Icahn Partners LP v Francis deSouza , Del Ch, January 16, 2024.
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Governance Insights 2024
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